matt
welcome back to the podcast hey kyle
good to be back
um last time you're on the podcast you
gave us kind of a rundown of uh
cryptocurrency and hot wallets uh
and and you worked at coinbase then and
uh now you're working for a different
exchange uh
gemini and i i
recently uh started reading the book um
bitcoin billionaires which is about the
winklevoss twins who are the
the owners of gemini and
it was interesting reading about like
the early days in in bitcoin
i i recently got into it after our
conversation is when i first got a
little taste of
of bitcoin and then more uh in in 2020
i started to get more into uh
cryptocurrencies and stuff but
reading about the early days like when
the winklevoss twins got a hold of it
and they're like oh this is gonna be
huge and i think it was back in like
maybe 2012 i want to say
uh they were trying to get large sums of
of bitcoin i think it wound up being
like a total of 11 million dollars
and they had to go through uh this
exchange
that was called mount gox and mount gox
was run by
uh this guy out of japan and it was
really complicated to have to
get it and and there was issues with you
know latency and it was it was hard to
it was hard to acquire bitcoins back
then and um
so i was wondering if maybe we could
talk a little bit about that in the
context
of you know where where we were then
and where we came uh and uh
just talk maybe a little bit about
bitcoin and you know what it's
what the real innovation there was and
and how far we've come over these years
yeah big question i guess yeah no it's i
mean it's timely you know we're in
all-time highs lately
and um yeah today
is 55 000 today i mean and we hit a one
trillion dollar market cap
yeah and it's february 19th today for
those who are watching this in the
future
february 19th 2021 so right
uh who knows what it'll be by then by
the time
anyone listens to it so like uh yeah
i mean back then when you were buying
from mount cox you were
literally wiring money to a foreign
entity trusting that it ended up there
correctly and i mean mount gox's
magic the gathering online exchange is
what it originally
was for so like this guy was selling
magic cards
and he pivoted into bitcoin and
you know it's it's like knowing what i
know about the what you need to do to
secure that stuff it's it's not
surprising you got hacked
and i remember back then
uh i was i was an engineer and working
at this
i i was at a party one time and
someone's like oh we want to build this
bitcoin thing
for you know cross cross border payments
and i looked and it was like 115 each
then and i was like oh it's over like
why would i join a
bitcoin company when it's already 115
like
because i didn't get it and i think this
is like what what happens for a lot of
people when they start getting into
crypto
is they start with seeing the price and
like they see price go up price go down
and and that's about the extent of their
familiarity with the technology
and if that's as far as your involvement
goes or your understanding goes
it can seem completely erratic
for why people would put value in this
thing why would go up or down
and it just seems like uh you know play
money
but when you start getting into
kind of why bitcoin was made and
what benefits it provides you start to
kind of understand
how this could end up being so valuable
where
you have a digital currency that is not
facilitated by any one organization it
is
censorship resistant
these are like terms that are used a lot
in the industry but like
basically meaning no one can stop you
from using it
if you have access to the internet
you can use this like piece of data to
hold value
and that's incredibly powerful because
there's
all sorts of organizations that control
the access to capital there's nations
that don't have access to capital
there's you know people that take
fees uh and
exploit these transactions for their own
profit
when it's really just as simple as a
transaction online
and like it doesn't need to involve all
these middlemen it doesn't even involve
these parties that want to decide
whether or not you can have that money
or transact that money
you can just work online and like
when you start to get into how that
actually happens
uh i started getting that in like 2015
2016
and it started to kind of click for me
then that's when you really start to
understand how this is valuable because
it makes you want to get involved
because you realize the impact can have
and and here we are now in 2020 where
there is a whole you know landscape of
different currencies
that accomplish different things for
different reasons
and there's a huge amount of value in it
you know i think there's 1.6 trillion
total market cap in the entire industry
and you know a trillion of that is just
bitcoin alone so i think like
i i expect it'll grow much more than
that you know it's
it's like if you compare the utility and
benefit of the cryptocurrency
industry today it's
it's providing more valuable than gold
is and gold is
a larger market cap so i i expect
cryptocurrency to continue growing
and what gives bitcoin it's its value
yeah it's a good question uh and that's
like the most common question
i think like people often say scarcity
where people often say
um that it's you know provides some
utility
and i mean i don't know
i think that like why humans value
something
or find value in it can't really be
reduced down to one answer
i think that it it serves
a purpose to you know
especially in our society today it
serves a purpose to store value
in a digital age it serves its purpose
to
be easily transacted that you don't have
to wait two to three days for your bank
to send a
electronic payment uh it even serves a
purpose to like
hedge against you know
government states that you don't really
like the direction that
you know an economy is going where the
inflation is going or whatever it might
be
depending on your nation uh even if it's
you know even if it's just storing value
in that environment that can be
incredibly valuable to you and can
actually be more valuable than the fiat
currency that you get from your
government
so you know if we don't really question
what gives
a green back its value
it's the same thing as what gives
bitcoin it's value it's it's kind of the
story behind
it right like it's it's been you know i
think
satoshi nakamoto came out with a white
paper
saying like here's a currency
that you know like you said it's
censorship resistant
you don't need a a government to say
this is
this is real it's backed by math
essentially so it's the
the math equations that you know give it
it's scarce like you said there's only
going to be 21 million ever
um and so
and i think that story has kind of
proven itself over time
too you know like it's it's it's been
tried like governments have tried to
quash it and
just you can't it's been i don't have
heard it called
the uh the sewer rat of the
of of the cryptocurrency or blockchain
space because it's just been able to
survive
regardless of whatever happens and you
know the more
the more you know uncertainty or
you know the more fun that's that's shed
on it the more
it just keeps pumping up you know and so
it's
it's kind of that like what you said
it's you know we don't really know it
gives he makes people value stuff but
it's that
kind of the narrative the story around
it if bitcoin
if it turned out you could hack bitcoin
or you could spend more than
the same bitcoin over and over again and
and you could
fudge the system that would probably
make it go down significantly right
people would lose their faith in it
so but that i mean that hasn't happened
it's not likely to happen it seems like
it's been able to be proven
pretty well to guess from you know it
was a few cents when it first came out
and it's like
it's like you said over 50k now which is
insane
um it's funny yeah my my sister just
texted me today and she's like is
is now a good time to get into crypto
i'm like i have no idea i don't know
but um it's like uh the best time to
plant a tree right like the best time
was 20 years ago
the second best time is now yeah yeah
maybe that's what i should have told her
i'm like i'm like probably
a question mark i i don't know i don't
know what's going to happen tomorrow i
don't want to tell you that i mean
definitely don't put your life savings
into it but
yeah right anyway uh so
yeah i think yeah that's uh i think
bitcoin
is and the more i get into it more i
read about it and learn about it i can
you know kind of caught the bug and
just realized that you know this is a
really interesting thing you know like
this is
uh in an age where um
like our lives are digital now right
like we have like online personalities
it's like this is our online money like
our lives have largely moved over to
the internet and even like dollars you
you you know trade like you get paid
from your
employer it's usually put right into
your bank account
you don't even see the actual dollar so
it's like
especially during the pandemic like i
i have a hard time remembering the last
time i used actual physical cash
you know maybe maybe i like paid a
toll or something i don't remember but
like it's only a handful of times that
i've used cash in the past
year yeah yeah so it's
um so yeah it's it like you said it's
proven to be super valuable
um one of the things that you know as i
started to research and get into this
thing uh i started to learn about it was
you know um
bitcoin you can only really do three
things you can send it you can
receive it and you can hold it you can't
do anything
other than that um
but what i've learned is ethereum's come
along and it's kind of been like this
new project where
now not only can you you know do those
things
uh but now you can have smart contracts
we can put some logic in it so if this
thing happens then this thing can happen
and there's a whole ecosystem of these
different
uh smart contracts that can interact
with each other they're all open source
so you can
have one contract interact with another
contract and
um it's really cool because now you can
do things which called like
decentralized finance
uh which is um you know taking what you
normally do with a centralized
uh bank or centralized exchange
we could talk about centralized and
decentralized
uh but the thing i like about d5 is is
now
you know if i take uh let's say i had
ten thousand dollars and i want to
deposit into my bank
the bank's gonna turn around and loan
out 9 000 of that dollar so they only
have to keep 10 percent of what they
have and then they are an interest on
that so they're
earning interest on your money so what
the beauty of
uh i think what the d5 space and what
ethereum has done is now you can take
your dollars and you can um you can loan
it out you can
you can loan it out you can borrow money
you can
uh you can stake your money you can
yield farming we can get into some of
those things uh in a bit here but like
there's a lot of cool things you can do
and there's more things that people are
coming out with every day
um and so um
yeah i was just maybe you could just
talk a little bit about the
uh what what's the ecosystem like today
um
what what do you see like
what do you think about that yeah so
uh we talk a lot about utility in the
industry
like we talk about you know what what
can this token do
that is uniquely beneficial
for its its holder and
like you said crypto earlier on like
just bitcoin
a great store of value that's utility
case
uh payments send and receive like that's
that's great because even with payments
um like
western union takes like 11
of remittances from you know
cross-border payments
and you can pay you know a dollar
to send crypto across borders and that
means that the people get to keep more
of that money so payments was a great
improvement
uh that was one of the first most
obvious use cases
of cryptocurrency then uh in 2017 we saw
icos
and this was raising capital you said i
have an idea
i want you to pay me for it and
uh when it goes really well we'll all
you know do well together
and raising capital was another utility
case that drove
a lot of adoption in crypto and that was
i think when it got on a lot of people's
radar for the first time uh
after 2017 there wasn't a whole lot of
new utilities showing up like there were
a few different ideas
but it wasn't until d5 where you started
to see
uh some real traction around
this being a good use case for utility
that
in the same way that payments disrupted
moneygram and western union icos
disrupted venture capital
now we're seeing traditional finance
financial services being disrupted by
crypto and that looks like uh like you
said if i go and put my money in my
savings account
i'm essentially allowing that bank
to go make money on my money and they'll
give me
a small portion of that well we don't
need the bank to do that now
and we can create a system which is
what defy is that you put the money in
and you get a certain percentage yield
on on that
money that you put into the system and
the protocol at the protocol level
will be willing to loan that
cryptocurrency out to another individual
that is willing to pay interest for that
loan and this is
you know trustless parties you don't
know the person that's taking the loan
the loan recipient doesn't know who's
providing the liquidity
we don't need to because everything is
bound to the blockchain
and in order to make sure that my money
is safe when i put liquidity in
the protocol requires over
collateralization
so if the if the loan recipient
wants to take out as an example
uh one ethereum loan in need one
ethereum
they might have to put in 1.5 times the
value
of collateral to get access to that
and so then you know people are saying
oh if i have
1.5 times collateral why do i take out
the loan
and this is mainly because like the one
thing you get
from having a central organization is
someone to bear the risk
so a bank bears the risk if the loan
defaults but we don't have anyone to
bear that risk we're not willing to say
the liquidity provider bears that risk
so um for me say that i need to
pay someone a thousand dollars i have
a thousand dollars or two thousand
dollars worth of eth
but i don't want to sell it to be to get
access that capital
so i can put that as collateral into
d5 i can get a one thousand dollar
uh die token loan i can sell that give
the money to the person that i owe
a thousand dollars to and then down the
line when i get the
my money back i can give back the
thousand dollars pay a little interest
and get my collateral back
and like that is just strictly access to
money in
the same way that you'd get a loan from
a bank
but i can do that for my phone like i
can just
open an app on my phone press a few
buttons
and within an hour like after
transactions settle and stuff
i could have that money and in order to
go through that same process with a bank
i don't know how long it takes it takes
a long time and
and like last time i took out a loan at
the bank i had a big stack of papers to
sign
half of it i didn't understand the
wording of it
and i and i don't know like i paid a
higher rate from a bank
it just seems like there's so much more
efficiencies gained
by removing that middleman and having
the person that
wants to get the money get it directly
from the source
of the person providing it and you get
better margins
you get better rates and overall i think
it's
it's the type of thing that when you see
it work
it's an obvious evolution of financial
services because
it is more efficient and if something
can be more efficient
i think that uh it'll win in the end
wow there's so many directions i want to
go there um
maybe let's talk about this so you
mentioned dye and so dye is kind of the
decentralized stable coin
um and you talk about that you talked
about that that
uh that whole process
just kind of in a in in general like
what what types of protocols out there
are there any particular protocols out
there that you think are doing a good
job at this
um you know if you talk maybe a little
bit about you know one of the protocols
and
maybe explain dye a little bit too yeah
you bet
so we'll start with kind of what the
base d5 protocols are um and there's
a whole bunch up there but you'll you
know some of the higher
profile ones are like avi or uniswap
um those those are the types of uh
platforms where you have pools of
liquidity that
can be borrowed or
can be used to support a dex
so if you say like i have one currency i
want to convert it to another currency
it will be able to calculate the current
market price for that
and will have liquidity stores available
to
be the counterparty for whatever you're
trading
and this is kind of like the newer era
of dexes like the older era of dexes
would um be more of like a bulletin
board system where like someone would
say like
uh decentralized exchange right yeah
right so this is like the idea of
trading
you know like i have one thing i want to
get another thing
and uh the older dexes would be
like a bulletin board system where you'd
say i have one eath and i want this much
for it
and someone could take that offer and
and
there wouldn't be any kind of matching
system under the hood like
you couldn't have two parties that just
said i'm willing to sell this i'm
willing to buy
this and match uh it was more of like
one-off bid and offer take and give
but now because of the developments
largely by uniswap earlier last year
um they're able to calculate kind of
guarantee
a market rate for the price based on
their liquidity
so if you have a lot of
ethereum and you want to trade for die
the price of one converting to the other
will shift as the supply changes and the
thinking
is behind it and it pans out to work uh
that if the price gets too far off one
way or the other
someone will put more liquidity in to
earn a better yield
to replace back where the price should
be at the market rate on like
centralized exchanges and stuff like
that and this is called a bonding curve
that the price will fluctuate based on
the supply of the system
and and it what happens is
you financially incentivize the
participants
to provide more liquidity when needed
because they'll get a better yield on
that
and to capitalize on a good deal
if there's oversupply of one currency
people will buy it up because it's
cheaper than
the market rate and this just kind of
normalizes the price into what the
market rate should be
and this is all done without like a
centralized exchange overseeing those
order books
and it's one of the reasons why d5 was
able to get so much traction last year
because
it's a much better experience to have
that matching engine
and automated market makers uh
to be able to trade much more easily
than you could
on the previous iteration of d5 oh man
so many directions i want to go again
but let's all right let's stay on the
uni swap then so
yeah i mean i would think of uniswap and
ave to be kind of different a little bit
different
um different they have a little bit
different functionalities where like ave
is like you want to
borrow or you either want to borrow or
loan
you know tokens versus
unit swap i look at more of uh you want
to
i guess i guess it is kind of the same
but it it
to me in my mind it has a different
function because i think of i think of
like
i think of unit swap as like a
decentralized
coinbase or gemini for example a
decentralized exchange in that way i
guess ave
maybe because there's a lot more coins
on it and a lot more tokens rather
um versus ave has like a limited amount
but
you can you can loan you can loan and
borrow and stuff like that yeah so
like one of the things on one of the
reasons why d5
has worked as well as it has is because
everything
within e5 the d5 follows the erc20
standard
and so like if you create a new token
and
you talk about erc20 that inside yeah
yeah so erc20
uh it's it's like a abbreviation for
ethereum request for comments and it was
the 20th one of those
uh requests and so on github where
ethereum code is written and stored
uh there's like a way to raise new
issues and say i want to talk about this
thing i want to talk about this thing
and way back in 2017
i think early 2017 uh someone said hey
i want to like define a standard
for a token and because they wanted to
be able to have
a currency within one ethereum smart
contract
so if you have ethereum as a network an
ethereum is based currency for that
at any one address you have a smart
contract that has all the different
programming to make the thing do it's
supposed to do
and so when you use ave or you use the
unit swap
all of that functionality under the hood
is all inside
one smart contract or it might be a
handful of smart contracts that it
branches out to
and within that anytime you have a token
that's in d5
every one of them follows this erc20
standard that they established back in
2017
and that's basically like send receive
mint burn uh check my balance
you know stuff like that like basic
rudimentary
token handling and
because they all fit the same standard
all of them are erc20s
you can just add another one because
it's the same thing it just has a
different ticker
a little different configuration but for
the most part
it's all the same thing and and then
that's
the same kind of ideology around d5 that
you can piece these things together
because they're all just smart contracts
like lego pieces exactly they call these
like money legos
where you can just piece them together
and you start to combine things and and
to your question about the different d5
protocols
there's like wire and finance that
they route to different d5 platforms and
it's
it's like automated routing to the best
price
and the best rate and stuff like that
and that's able to do that because it
can just interact with different smart
contracts
so you know it's it's like yeah some
protocols might have a few more assets
than others
but like as an example i wrote the token
list for uniswap for gemini
and it's the default list on there now
and it's just a list of
the tokens that we think are really good
but you can make your own
and you can have your you can make your
own token and you can trade it on
unisoft if you want
if there's liquidity and that's cool
you know it's like uh it's it's very
accessible
and uh i think it's it's like one of the
reasons why
you know because it's so open and
everything is like the same standard
it's made uh building in d5
you know really successful over the past
year yeah that's what i really like
about uniswap is like i mean there's
thousands of coins on there um but i
guess some of the bad side is is like
you know you have people that are
putting these scams on there and then
they'll
they'll take the money and run or
they'll pretend they'll like make like a
a contract that looks like another
contract it looks like another coin and
uh if you don't get on the right
contract then you can you know you can
be screwed so
it's always good to check on that you
know um
like like you said like gemini's got the
list of of the of
the you know the good tokens make sure
you find the right contract for it
before you
before you trade any of those things and
like like coin gecko a lot to
you know figure out where uh
where these different con the right
contracts are that's why i really like
coin geckos yeah use that and ether scan
is good for that too yeah either scan
yeah yeah definitely um
i guess so that's one of the downsides i
guess another one is
uh if there's a lot of and now we're
seeing a lot of people get into this
space
um and it really bogs down the system so
it'll take a long time for transactions
to happen
there's also these gas fees and gas fees
have been just astronomical so sometimes
it'll take
you know 50 to 100 just to make a
transaction happen in d5
um and so i'm wondering if you could
talk a little bit about
what are kind of some of the solutions
to this problem
i know we talked a little bit you know
prior about
uh layer two uh things coming out
um i know that ethereum ethereum twos
looking at some sharding stuff um so i
don't know maybe
talk just a little bit about um what are
kind of some of the solutions to the
system getting bogged down
gas prices uh what's what's the future
holding for us
yeah for sure um it's it's like top of
mind for everybody that's
been working in it um the this it's real
scaling issues that it's a good problem
to have you know we
experienced the same problems with
bitcoin in 2017
and um like cryptokitties was one of the
first things to really test
the ethereum network but we're way past
that now
and so last december
the beacon chain for eth2 launched and
it was a big big milestone for eth2 they
had been working on that for literally
years
and it's basically the first kind of
flag in the ground
to get a proof-of-stake
network running that can
be compatible with the existing ethereum
network
and there's some caveats to that but
basically it's the first step towards
launching eth2
and what they're going to do as over the
next two years or so
they are going to roll out next
milestones in that process to be able to
launch different shards on the eth2
network
so a shard uh like sharding in general
on network
is basically the idea that you have
several
smaller networks that are not processing
everything ethereum is doing
but it's processing the stuff that's
relevant to you
and if there is something that you try
to send to that's outside of your little
cluster it knows how to route it
correctly and knows how to settle it
correctly
and knows how to finalize it in a way
that is safe
that it doesn't offer double spends does
not work for reversals
and it can do that in a in a you know
segregated network
or partition network way and um
eventually when all the milestones are
hit on the way to e2
the original ethereum network will
become a shard
of the eth2 network and will be switched
over
and then you can scale horizontally and
and you should be able to scale
uh pretty well all depending on how the
messages are able to route between route
between the shards
however um it's not going to get here in
time
like we need it now we don't want to
wait two years for this
and so there's been alternative
solutions that have been proposed and
are actively being worked on now will
probably show up around the summer
for what they call layer two and
these are often kind of roll-up
solutions
where you can broadcast a whole bunch of
transactions
on this second layer above ethereum
and those networks can resolve faster
they can um they don't have the same
kind of like
bandwidth requirements as ethereum as a
base network requires
and and when that layer two network
resolves the transactions it settles
back to
the ethereum base layer so it still
depends on the ethereum network
for its security to make sure that all
the transactions that happen on their
network
settle on ethereum but it reduces the
number of transactions that are actually
being processed on ethereum by
a large margin and even vitalik himself
in a forum post was talking about how
it's very likely that layer two
solutions are gonna solve the scaling
issue
really well this summer and could
potentially provide even more scaling
than sharding
and even though sharding might be a
cleaner solution because you don't have
these like multiple layers and stuff
he's like it's entirely possible that we
get accustomed to the layer 2
pattern and we are enjoying a lot of
scaling
and we just never do sharding because we
don't need it anymore
and that's a possibility and it will
be interesting to see how it plays out
um but it's it's not like sharding is
the solution
it's entirely possible that layer two
could be
uh or it's possible that we'll have some
hybrid of both
and so layer to so
these these transactions they
happen off the blockchain but get
settled on the block
on the blockchain after a bunch of them
happen or something like that is it am i
understood it's similar to
um like lightning network uh that's like
the the bitcoin layer too
um and it's you're essentially just
trying to
have a way to process transactions that
will
ultimately settle on the network that
you're operating on
because you want you don't want to lose
the security you get from
all the people running ethereum miners
but you need to find some way to
alleviate some of the pressure
that's coming through on that network
and that can be done
by consolidating down these transactions
on the second layer
into what they call like a roll up into
the base layer
so is there any risks to that because
you did mention that you know
the the reason we do it this way and the
reason that we have these gas prices
because the ethereum miners are the ones
that are verifying that this transaction
happened and all these different nodes
all over the place right
so and i guess that still happens
but it happens off the chain
before it comes back on so is there is
there any kind of risks to that
that are inherent to that yeah i think
if
um like if everything moved over to this
system and like there were like
nothing but roll-up transactions on
ethereum that would test that network a
lot because then you're just
switching one chain's problems for
another um i think the expectation is
that
some portion of the volume will move to
a roll-up
and it'll depend on as people adopt it
because you'll need to like
adjust your wallet software uh
that some portion will move and it'll
kind of alleviate
that pressure enough to be able to
support like growing the ethereum
network
as we need um and i think like
there's a few different implementations
i think optimism is one of the
optimism and loop ring are two of the
projects that are coming along
pretty well and um
i think they're going to be making
design choices that will affect
that question as well yeah it'll be
interesting to watch and
see what happens um so you mentioned the
ethereum you know ethereum two we're
looking at uh
moving from proof of work to proof of
stake um
what's what can you just explain what
the difference is there
yeah uh for proof of work
you are taking the next set of
transactions
you are running through what's called a
hashing function which just basically
means you take a big chunk of data
you run it through a function computer
function it spits out a unique
identifier for that
data so you say we take like five
transactions
you know send one bitcoin here one cent
one bitcoin there
and that text in binary format
gets converted into a hash and if they
find a hash with a certain number of
leading zeroes on it
that's considered valid and all the
other minors agree
that that's a valid block and that's
mining in proof of work
and in that scenario it's really just
comes down to who can guess the most
hashes
because you just try one hash then you
try another one they try another one you
try another one
and they'll be doing millions and
millions of these to find a block
and it takes energy and takes time
and it's intentionally competitive
to make a lot of people trying to get
that
correct hash and and that's
why you get a reward for finding it
because you're putting in the effort to
find it
and it's what prevents people from just
making up their own blocks quickly
to rewrite history and to decide where
things go
like it is intentionally difficult and
you have to show that you've
put in the work to produce a block to
secure
what transactions should get processed
and like that's that's what we kind of
depend on now for bitcoin and ethereum
there's all sorts of criticisms that
come with that um
it's you know expensive on energy uh
it's
unnecessarily costly for this
competition to occur to find the next
block i think i read something
just on the energy thing i just read
something recently that it was
i think uh the amount of energy spent on
bitcoin mining last year was like enough
to power argentina or something like
that
yeah i read that as well uh it's it's
also
i don't i mean i i agree there's like i
i like proof of stake i think that it
is a better solution uh however that
i just wonder like how much electricity
jp morgan uses in all of their buildings
across
the world every year so i mean that's
similar
too like that is a similar thing so
yeah but uh with proof of stake
what we really want to accomplish is
like uh we want to have the same level
of security or even better
but we don't want to have to do this
like guess and check process with the
hashes to see if we found a valid one
so instead instead of using that like
raw
like compute power as the incentive to
secure the network
we use we leverage financial uh
incentive
to secure the network and we accomplish
that by
having anyone that wants to produce
blocks uh
stake their funds in the same way of
like putting money into
a pot you know when you're playing poker
you're like putting money in say all
right that money's in there
and you're agreeing if i mess up you can
take it
and the more money you put in the more
likely you are
to produce the next block so you're
incentivized to put more money into the
system
and the more money you have in the
system the more incentivized you are
to behave and do it right so
in a scenario where we have a group of
minors and we're all in proof of stake
and we all put money into the system and
we say all right
everybody puts in 10 ethereum or
whatever and
um someone comes along and puts in 50
aetherium
they're going to get the chance to
produce a block
five times more often or so you know
it's
it's calculated depending on how much
you put into steak
and that person if they mess up or they
they do things the wrong way
or they act maliciously
the thinking is that it's going to hurt
the value of the ethereum they put in by
more than they could stand to gain by
behaving that way
and they don't have any incentive to
misbehave or act maliciously because in
order for them to have
in a good decentralized system in order
for them to have
enough frequency of producing blocks
to be able to consistently do execute
something like a 51
attack uh they would be just
ruining the value of the coins that they
have in there and they'd be getting
slashed
because they'd be getting taken by the
system because they're not producing
valid blocks
every other miner in that system gets
rewarded if they point out a problem
so if both of us are miners and i
produce a bad block
you can point out hey they just double
spent
that balance or they didn't produce this
the right way or they didn't produce a
block at all when they were supposed to
and every time that you point it out my
state gets slashed and you get a reward
so you have this like system where
you you don't need to have crazy
computing power
you can have really fast blocks you just
need to have everyone behave
and have good financial incentive to do
so
and i think like there's a lot of proof
of stake chains out there
today that are you know really fast
really
you know power efficient all that good
stuff
thanks for explaining that i've never
heard it explained like that and i think
i finally understand it so
good thanks thanks for that uh
explanation
um in that model and i guess i i was
thinking about this
like because because i really like the
idea of d5
right that like anyone can get into this
and you mentioned kind of like
um you know the
kind of the dream of it of you know part
of it or
cardano for instance and we could
probably talk about other blockchains
other than
ethereum um but to kind of connect
the banked and the unbanked world right
um
in i guess in that proof-of-stake
scenario so
we're talking about this this um
this type of money where it's not really
nobody really decides anything about it
like you don't have a centralized
government that's
you know deciding things about money
there's been examples of
you know governments where they just
they say no this this
this this isn't good anymore or
venezuela for example like their money
like
people had to have wheelbarrows full of
it to actually buy anything for
you know for i don't even know what's
happening there now but like
those types of things can happen right
and i guess
and so the idea is that
you know the coins or tokens coins in
the d5 space they're not tied to any of
that
and then when i started thinking about
like proof of stake i mean the stakers
are kind of the elites that are running
this thing
you know like and so i'm just like is it
just kind of swapping out
you know a uh
the problem with and creating a new one
um i don't know i don't know if you have
any thoughts on that that is you know
stuff i haven't think about it anyway
this this gets into the um you know
decentralized ethos
of like it's great to have the
option to hold currency yourself
like on a treasure a ledger in your
house
but like i i personally lost a lot of
eth
because i forgot the password i feel
like it's a rite of passage for people
that work in crypto a lot to lose some
cryptocurrency
because you didn't write down the
private key or you didn't like do the
thing
because i was new to crypto and i didn't
know
and like that's the risk of
decentralization like
you are solely responsible for your own
sovereignty
and in a scenario with like stating that
i described
uh in eth2 the maximum staked position
is 32e which works out to like
250 000 it's more now or whatever back
then but
you can't stake more than 32 on one
machine
okay and this is an attempt at
decentralization
so we'll play this out and like
what happens then if i if i have 32 each
at home
and i spin up my computer or i even
connect to aws and i spin up a
computer there and i want to stake my
heat
well i have to make sure that thing is
running 24 7 and responsive 24 7.
and if it if it misses a block
validation that it's supposed to hit
i lose money so that alone
most people have a hard time with that
level of like site reliability
of making sure a computer somewhere is
running and responsive 24 7
for for years so that's kind of
self-selecting out even if
even though we're decentralized the
second one is that like
32 each is still a lot of money you know
like that's that's a lot of ease
so yeah it's better than these really
enormous like stakers
uh but it's it's still like a lot of
youth to have and
high requirements to be able to run a
staking operation correctly
the third one is that what we're seeing
happen
is most of the centralized firms
are just running a lot of instances and
they're just running their normal
balance but with like
many staking machines rather than one
staking machine with one large balance
and there's there's reasons for
why it's good to have many sticky
machines not just one large balance for
security reasons
um but we're you're consistently seeing
that
in mining whether it's proof of work or
proof of stake
there's a consolidation around the
people that know how to do it well
right and because they're well they're
willing to do it
and take the risk of doing it wrong and
as a result the people that don't know
how to do it
and don't know how to handle their
private keys correctly they're willing
to say
i'm okay with you holding on to it and
you'll give me a yield for that uh
but like that's kind of a nice thing of
having a bank or having a central
organization that
takes care of that stuff for you like
i've seen multiple
cold storage systems i
cannot build those systems at home i
just can't
and to be able to have the security of
those systems
and have access to staking operations
that's that's the benefits of working
with
those like central entities
interesting interesting and so yeah
that's something so that kind of brings
up uh another another topic that a
friend of mine
me and my friend we were texting back
and forth today because we were looking
at uh
finance coin it's just blowing up today
it went up to like
uh i think like close to 300 uh yeah
and uh i was like
wow and i've been hearing about binance
smart chain and how
because of these gas fees and stuff
they've really taken off and
the coins that are on on that ex on that
blockchain
um are really taking off and i i haven't
really been in it i've been meaning to
educate myself a bit on it but i haven't
a friend of mine was saying that you
know i've
heard that you know finance smart chain
isn't decentralized and
i don't know if you have any thoughts on
that what what makes something
decentralized for
centralized yeah i i think the the most
important thing
with any of these decentralization
conversations
like even how i just said like yeah
there's benefits to having
centralization
having the option to be decentralized is
critical
like you need to be able to have
self-sovereignty
if you want it and and as we see
ethereum
gas prices get higher we're going to see
more d5
ecosystems and alternative chains
gain traction because you lose a large
margin of what you're
you're getting if you use ethereum a lot
right now
because you're paying so much infuse so
i think the
ability to move your currency to a
different chain or the ability for you
to
take any of your currencies off any of
these chains and
be self-sovereign and hold it at home
that's
the critical piece of decentralization
that i don't think can ever go away
that's why like robin hood gets so much
flack
about allowing you to buy and sell
bitcoin and ethereum
but not be able to send it to a hosted
wallet
or to your own wallet and they were
saying that's not really crypto that's
just like an investment account
right right you're just paying someone
else to buy it for you and then sell it
for you at some point
not your keys not your cryptos kind of
exactly
the the saying that it goes in in the
crypto space right
yeah exactly so that's i think
in my mind anything that kind of has
those characteristics
is decentralized in my mind there will
be centralized players
but like it's decentralized if
you have those characteristics so
finances
sorry go ahead oh yeah so if you're able
to like
some wallets you can't get your own they
won't let you
have your own key right so like if you
can't grab your own key from it that's
not a decentralized wallet is it
right right so i think like uh in
in binance's case and a few others like
ripple and some others
they'll have what's called like um
authorized validators
where in in like if2
if i wanted to i could download the
software plug in a computer
start my staker and i can i can start
mining
uh the new network and same goes for
bitcoin
it's probably not profitable because
there's such huge mining operations but
if i wanted to i could download the
software plug it in
and start guessing hashes myself and try
to find the next block
i might hit it for you know like the
lottery
and i get like the the the block reward
which would be a huge amount of money
but it's probably not likely
so in binance and some of these other
ones
they go and they work with organizations
and they say
or they run them themselves and say
we're going to run nodes but only the
people that we know
are going to run them and this is like
author
like they're authorized to run these
pieces of software
and yeah it's it's potentially
decentralized to some extent where it's
not just one company's servers it's
software that's run on different servers
and different clouds and stuff like that
and they all coordinate the same way a
blockchain does
but it is different than pure
decentralization where
there's not a governing body that is
saying you can be a part of it you can't
even at the block production level so
like anyone that wants to can go and
send transactions in in the binance
chain but
not everyone can go and produce blocks
and it's like that's the decision
the mafia if they have like their
binance mafia so you have to be part of
the mafia to be a node operator
same as uh libra or dm now where
you know they're working with specific
institutions to be able to operate that
network
and and they were selected because they
were trusted you know
and like they didn't want just anyone
showing up running a node
and it you know the same reason why
there's some benefits to centralized
exchanges
there's some benefits to centralized
networks as well it's a gradient on
decentralization it's not
black or white cool um
do you wanna so we mentioned a little
bit about these other blockchains that
are
that are popping up um is there any that
you're super interested in
any ones that you want to talk about um
totally
um what's in your mind i'll admit
there's
there are a lot of chains that you know
they come out of nowhere and i'm like
man that that looks so cool how is that
not on my radar
and um it's it's tough because like in a
bull market you kind of bull market
roulette
yeah where like every day there's like
some chain will
go 70 and you're like what what's so
what's
great about that chain and
no matter how i look at this uh
i i will have a a small
view of everything that's going on in
crypto right because there's just so
much stuff happening and
obviously with all the obvious
disclaimers that i this is not financial
advice
uh i i think that there is going to be a
trend
where um the stuff that's happening on
d5 is like
reproducing a lot of financial services
we see in legacy finance
and i think that crypto will continue to
eat legacy finance
until you can do everything just as well
and defy
as you can today in the banking system
and i don't think that ethereum can
support all that and it might take a
couple years
maybe they'll figure it out in time
whatever roll ups will work maybe
but in the meantime you've got other
chains that
are providing not only their own like
layer one platforms
but they're providing evm compatible
layer 1 platforms
so evm is the authoring ethereum virtual
machine it's how you execute the smart
contracts on ethereum
and there are new chains like polka dot
and avalanche and cosmos
and some of these uh newer projects
that can run the evm in their chain
and what what you're seeing with some of
those
new developments new chains is that it's
it's not so much that
it's like an alternative to ethereum
like polka dot
they call it like a meta protocol where
if you separate there's like two
components in
a blockchain first like smart contracts
you have like the consensus layer and
you have the
the virtual machine where you do the
actual execution
and uh in in polka dot
you've got a consensus layer called
substrate
and in cosmos you've got a consensus
layer called tendermint
and they're kind of building these like
base consensus mechanisms
that you can put different virtual
machines on top of
so you can have a full blockchain
that is running the ethereum virtual
machine and have it be consensus
compatible
with other blockchains that are rather
than running other virtual machines
and like avalanche right now they have
a an exchange chain and they have
a smart contract chain and you can
transfer between them
but you can run like virtual like
ethereum contracts on
on one chain you can't on the other and
this sort of like blending of inter
interoperability between chains
is going to have a couple effects one is
that it's going to
make it that much easier for people to
leave ethereum
because now you can just literally copy
and paste over
and you can see this if you go to uh
avalanche there is an app called
pangolin like the
the animal and pangolin is
100 uniswap
but it works with ethereum tokens on
avalanche
and it's kind of mind-blowing because it
kind of breaks a lot of your current
models of what
blockchains are where and what you can
do with them
but you're going to see more and more of
this like there's been more
interoperability between different
chains
and i think the the assets that support
that
trend are going to do well wow
that's yeah that's that's crazy yeah huh
that does kind of break my mind a little
bit yeah
mine too um huh
wow i'm gonna have to look into
avalanche that sounds interesting
yeah i think um like parachains are a
common term for this
like um cosmos i think has been around
the longest polkadot is one of the
largest
they're all they're all doing
interesting things yeah and so the pair
chain
so i understood and i just started
learning about it
recently but pear chain on polka dot is
like
uh i don't know i'm gonna get it wrong
but like there's like these little
like blocks that you can put your polka
dot into in order to grab
or to i don't to get to get different
tokens on
the polka dot blockchain it's kind of
the way you understand it i don't
really understand it yeah i think think
of it at the
chain level less so the token level so
like you you can
like i think cosmos calls you like star
ports where you can
peg one network to another so you kind
of get this interoperable
transactions and all it's kind of based
on the idea that
we want to be able to have secure
transactions
represented in this like mutual state
and i mean it's it's kind of
like it's kind of crazy when you think
about the idea
of some currency leaving the network
and it's it's really just like making
sure that that currency
if it is represented elsewhere can't be
spent
again well well it is you know it's
you want to always avoid the double
spend problem yeah and make sure that
if you are representing these assets in
different ways
you're not spending it twice same goes
for
stable coins like if we have a bank
account
and we we mint uh
one token for every dollar in the bank
account you're trusting that we're not
spending those dollars
like it has to be one to one so like
that requires trust of the organization
providing the stable coin
and this is just a decentralized trust
that the protocol is preventing that
from happening
and and so um so it sounds like
polka dot and avalanche cosmos are kind
of
you think and so i guess like you said
ethereum
and i guess the problem maybe talk a
little bit about the problem of ethereum
and it's super slow right like that's
is that the issue that we're seeing or
well it's just
it i mean if you think about uh that
proof of work model that i was talking
about
um every time a block there's a block
every 15 seconds on ethereum
and if you have a miner that's producing
the block they grab that set of
transactions they grab it from the top
of the list
that has the highest fees because they
want to be paid the most
so grab the top of the list and run
through and find
a block that matches the valid
requirements
and then they do it again but if the
transactions are getting added
faster than you can fit into a block
in 15 seconds then in order for your
transaction to get to the top of the
list
you have to pay a higher fee you can put
it at the bottom of the list and just
hope that they manage to get to the
bottom but there's a good chance you
won't ever
get your transaction processed so in
order to get it processed
you put it at the fee that's a little
higher than everyone else's
so you get picked up and put in the next
block eventually this keeps happening
and it drives the fee rate up to a point
where
in order for you to get in the next
block you got to pay
quite a bit of money to beat out all the
other people in the list
and like that's strictly because
there's a lot of volume of transactions
that need to be processed
and it's not anything to do with like
the miners
like the miners are doing the same
process they've always been doing
but there's just a longer list in what
they call the mempool
memory pool but for
these other blockchains the what's the i
mean you said
one block in 15 seconds what is like
what's do you know what avalanche is by
chance
uh faster than that it's faster than
that i
like i think solana is one that's like
particularly fast
um yeah i remember i don't learning
there's like 50 000 in a second or
something like that
yeah something crazy like that i don't i
don't fully
know how that stuff happens that quickly
um i mean i think
it uses some other variation of
consensus or some other
mechanism to be able to have confidence
that executes that quickly
even when we were working at dfinity
some of the
the ways in which we were able to get
that kind of speed
uh requires um more than just proof of
work
you know like it's the process of
finding blocks that fast
i don't think it really works you need
to find other consensus mechanisms
interesting well uh i have like a
million other things that
um i talk about but uh if people are
still listening maybe uh
maybe i don't know if we bored everyone
to death with uh
going into all these things it's one or
the other either people
like just have more questions or their
eyes have glazed over about 45 minutes
ago and
they're like all right let me know when
you tell me how much bitcoin's gonna be
yeah um maybe we could wrap it up with
it you could talk a little bit about
uh you know maybe some projects or
things you're excited about at gemini uh
what's gemini working on what we've been
talking about defy what d5 stuff are you
guys working on or what are you at what
do you guys got going i'm not super
familiar with gemini i got their credit
card i'm on their list for their credit
card i'm excited for that
so i know that yeah they have a credit
card coming out that uh will pay rewards
in i don't know if they're paying in
bitcoin or what cryptocurrency i think
you choose yeah
uh yeah we're doing awesome stuff there
uh i
i recently took over as the pm for the
wallet team
uh so we're kind of deciding how how we
want to
you know really push the industry in a
good direction and i think
both cameron and tyler winklevoss they
both really believe in d5
and they think that d5 is the future uh
and
and it's it's great to see the traction
there and the support from gemini to be
able to like
help with that however we can um one
thing that we've
we've been working on lately uh that we
announced i don't know a few months ago
is wrapped filecoin and
this is again that same idea of the
erc20 compatible token
that is usable in d5
the filecoin chain is a totally separate
blockchain
and a lot of times people want to trade
filecoin in d5
but it's not compatible you can't you
can't get there from here
so the way that we're helping with that
is
we're going gonna work with some select
merchants uh to
give us file coin that we custody for
them
and we issue them wrapped file coin and
that rap follow coin is going to be the
erc20 standard and you can use it in d5
so just like you can trade uh
a stable coin like die you can trade
filecoin
even though it's not uh in the rc20
asset
cool yeah that's what they did bitcoin
just came out or somebody came up with
rap bitcoin recently where it's
the same kind of concept right yeah yeah
wrapped assets i think and
tokenization in general is going to be a
big part of the t5 trend
cool cool well um all right any uh
parting words or uh people want to get
in touch with you or follow you where
can they find you
yeah uh this is a lot of fun i really
appreciate you having me on again
i think uh uh at least once for bull run
we should do this
yeah uh yeah i'm
i don't know if you got if you're
familiar there's a test network on
ethereum called rapston and um my
twitter is robsten rich
and uh you can find me
there i i don't have much of an online
presence i i'm
too busy working on crypto things but uh
yeah
hit me up uh i i'm usually very
receptive to chatting about crypto
all the time before we uh before we
did this podcast i looked up to twitter
and just kind of just browsed some stuff
but uh i was like oh website i
understand what that means now because i
started doing some stuff on
i've been messing around with just like
making my own test coins which is cool
it's fun i recommend people go to
remix.etherium.org and you can like you
can make your own coins
and you can youtube some stuff it's
relatively simple but
uh to get actually
some kind of um uh
some kind of what's the word i'm looking
for utility out of it
tell me that's the word right yeah i
mean i i had a i had a buddy that like
uh we made a march madness bracket with
it really
it's awesome and it's like you could
collect dues for people putting in their
ethereum
and it just paid out automatically
that's cool uh did you do that in the
main net or
yeah yeah because i just did that i just
did
uh the rinker bee test nut but uh
you got to use robson man that's
reliable okay all right well
if i get back into it and try to uh but
it was cool it was really cool to like
see like i just kind of went through a
tutorial and just like went through the
motions i didn't really know what any of
it really meant i'm not
a programmer but it was it was cool to
see my
transactions happen on ether scan i was
like i did it i made a transaction it
was cool
like you you poke it and it shows up and
you're like oh my gosh
it does the thing that it's like so
magical when you get to work
oh it's it's it's so cool it's like i'm
like geeking out about this stuff
and uh two years ago i would never
thought about that but anyway so
one of the craziest things about that is
that you can go and do that play around
the weekend
effectively like do the same thing with
an account that billions of dollars are
running through
yeah and like you it's really hard to
make your own bank
in the u.s banking system like that's
really hard to do right this is easy to
do
that's really hard to do and it's like
it's crazy that's why i got so excited
about it yeah thanks
and i guess i couldn't really explain it
but that's why you know it's like this
is what these guys are doing i mean
it's a little more complicated they got
more code around it and like they know
what they're doing
basically the same idea right awesome
all right well this has been a lot of
fun man
you know uh you know thanks thanks for
jumping on here again and yeah let's do
it again once a bull run i like that
idea
for sure man take it easy all right